Spatial Interpolation for Lattice Option Pricing – or Well Pruned Bushy Trees
نویسنده
چکیده
This paper proposes a novel lattice method of option valuation that is especially suitable to American-style options whose values depend on multiple factors. The key to the method is multidimensional interpolation, which allows using sparse lattices and thus mitigates the curse of dimensionality. A pricing algorithm and suitable methods of interpolation are discussed in detail. Some results about convergence and stability of the algorithm are derived. The method is illustrated by an application to rainbow options and compared to various benchmark results. Cornerstone Research, 599 Lexington Avenue 43 floor, New York, NY 10022
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تاریخ انتشار 2008